Monday, October 13, 2008

DJIA +573 Today; VIX at 61.43

Someday this will look like a very strange headline, but right now it makes perfect sense...

15 comments:

William Ripley said...

I just started trading the VIX I pought some puts trying to case it up. I just foubd out the VIX options price is caculated off the VIX futures not the index is that true? If so do you have a link I can get VIX futures quotes at?

Bill Luby said...

Hi William,

VIX futures quotes

You might also want to take a look at some of the posts I have labeled with a "VIX futures" tag for background information.

I hope this helps.

Cheers,

-Bill

Bill Luby said...

I almost forgot...to answer your first question, yes the underlying for VIX options is VIX futures, not the VIX index you see quoted.

Right now there is almost a six point difference between the VIX index and the front month futures.

Cheers,

-Bill

JK said...

I haven't been watching closely. Is it usual for the VIX futures to have a downward slope as they get further out?

Bill Luby said...

JK, the shape of the VIX futures depends largely on recent volatility.

If recent volatility has been elevated, then the VIX futures usually has a downward sloping forward curve (backwardation); if volatility has recently been compressed or tepid, then the futures curve typically is upward sloping (contango).

Essentially the futures price in some aspects of reversion to the mean. Of course what exactly that mean will be is not always clear.

Cheers,

-Bill

JK said...

Thanks for that, Bill. I was assuming something like that.

As an unrelated question, unless I'm mistaken, the liquidity on the recently introduced VIX binaries seems to be tiny. Is this the case (if you've been watching, that is)?

Bill Luby said...

On the VIX binaries, very little in the way of liquidity at this stage, I'm afraid.

Captain H said...

I have a NOV 20 PUT if it goes to 35 what will the BID n ASK be? I am trying to understand how to play the VIX.

Thanks

Captain H said...
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Captain H said...
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Anonymous said...

Depends on the date you're talking about. You will probably still be down on your investment, as your put is on a VIX future, not spot VIX. You really shouldn't be playing VIX options if you are still learning.

Captain H said...

It's NOV 19th 2008 so the VIX futures has to move closer to my stike price 20? If so what do you think the BID n ASK will be?

Thanks

Bill Luby said...

Captain H,

An somewhat educated guess is that if the VIX goes to 35 in the next week or so, your Nov 20 puts would be in the range of 0.20 to 0.30 or so.

VIX options are very difficult to model accurately, especially when we are talking about once ever couple of decades volatility.

Cheers,

-Bill

John said...

54.99 close... Is that a record one day drop from the previous close of 69.95 on either a point or percentage basis?

Bill Luby said...

In absolute points, yesterday was the biggest drop in the VIX ever. In percentage terms, it was #5 all-time. I'll have some more statistics up about this later...

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